Chunghwa Picture may produce less

Chunghwa Picture Tubes Ltd (中華映管), the nation's third-largest maker of liquid crystal displays (LCD), may trim production as part of its effort to weather a downswing, company officials said yesterday.

Chunghwa Picture, if it follows through on the plan, will be the second local LCD panel supplier to reduce equipment loading in an attempt to avert an expected supply glut. Bigger rival AU Optronics Corp, (友達光電) announced plans to cut production by a percentage in the single digits last week.

"We won't rule out the possibility of cutting production, if proposed price cuts fail to spur demand," Frank Lin (林鎮弘), chairman of Chunghwa Picture, told investors yesterday.

The LCD panel business makes up around 70 percent of the Taoyuan-based company's total sales, accounting for NT$23.41 billion in the second quarter. Thirty percent comes from cathode ray tubes used in traditional bulky televisions.

In line with the scaled-back production, the company's facilities utilization rate is likely to fall to around 90 percent in the current quarter from 100 percent in the first half of the year, according to the company.

Chunghwa Picture decided to slash panel prices by 15 percent to whet the consumers' appetite for pricey flat screens used in computers, said Liu Chih-chun (劉治軍), a vice president at Chunghwa Picture.

AU Optronics, however, expects that a 10 percent cut will be sufficient to boost sales of LCD panels.

"We believe demand will pick up in the traditional back-to-school computer buying spree beginning in September after channel distributors digest inventories," Liu said.

Chunghwa Picture yesterday posted strong pre-tax profits of NT$7.2 billion, up 17.6 percent from three months earlier, due to better panel prices. Earnings per share rose to NT$1.15 before taxation, up from NT$0.78.

In the first half, the company posted pre-tax profits of NT$12.67 billion, or NT$2.02 a share, which is ahead of the projected NT$17.67 billion for the year.

Despite the solid result, "mounting inventories are becoming a serious issue for the LCD screen sector," said Frank Su (蘇穀祥), an analyst with BNP Paribas Peregrine in Taipei.

Chunghwa Picture expects inventories of as many as 2 weeks in the quarter ending in September, up from 1.3 days last month, according to James Wu (巫俊毅), an executive with the company.

"The inventories are much higher than the four-day level that was hit in the last down cycle in 2002," BNP Paribas' Su said.

Chunghwa Picture's move to cut back production would risk eroding profits, though the scaled-back shipments would have a positive effect on the LCD sector as a whole, Su said.

The company predicts a roughly 20-percent slide in sales for its LCD business during the current quarter in the wake of the planned price cut and lower shipments, according to Wu.

In view of profit erosion, Su predicted that Chi Mei Optoelectronics Corp (奇美電子), Taiwan's No.2 flat-panel maker, and smaller HannStar Display Corp (瀚宇彩晶) would not follow suit in reducing shipments.

Chunghwa Picture shares fell 1.32 percent on the TAIEX yesterday after Chi Mei led the sector's decline by falling 2.02 percent.